Education, From The Capitol To The Classroom

Stories about students: How does education policy affect the way students learn and grow? Can schools meet their needs as they balance ramped-up testing with personal changes and busy schedules? And are students who need help getting it?

Stories about educators: How are those responsible for implementing education policy in schools − from classroom teachers, to district administrators, to school board members − affected by changes at the top? And how well do they meet their challenge of reaching students with varying abilities and needs?

Stories about school assessment: With an increased push for 'accountability' in schools, what can test scores tell us about teacher effectiveness and student learning − and what can't they tell us? What does the data say about how schools at all levels are performing?

Stories about government influence: Who are the people and groups most instrumental in crafting education policy? What are their priorities and agendas? And how do they work together when they disagree?

Stories about money: How do local, state, and federal governments pay to support the education policies they craft? How do direct costs of going to school − from textbooks to tuition − hit a parent or student's bottom line? And how do changing budgets and funding formulas affect learning and teaching?

Countless journalists, advocates, and lobbyists claim that the government profits when students default on their federal loans. But this week’s release of President Obama’s fiscal year 2013 budget brings further evidence that nothing could be further from the truth.

The Obama administration’s latest budget proposal shows the federal government only recovers 82 percent of a student loan after it enters default.

Though the feds can often recoup 96 percent of the lost loan’s value, it can take years for the feds to recover the full amount of the loan — and, as Delisle writes, “time is money”:

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Student loan defaults are costly for borrowers and taxpayers alike. And for those who still believe federal student loan interest rates are too high because the loans pose no default risk for taxpayers and that the federal government is the world’s best debt collector: In the words of the U.S. Department of Education, “some loans may have little or no recoveries while others may have substantial collections”

At a Lumina Foundation panel in February, Indiana Higher Education Commissioner Teresa Lubbers says she had spoken with Indiana University administrators who floated the idea of cutting off the flow of student loans to those who weren’t showing some promise of graduating.

“We should not be telling students to borrow money if they’re not academically succeeding,” Lubbers said.

Whether its lack of academic success or slow economic times, more students aren’t succeeding at paying back their loans.

As The Wall Street Journal reports, “Historically, investors have assumed 25 to 30 percent of student loans bundled into their bonds will default. But today they are baking in between 30 and 40 percent default rates among the current crop of graduates.”

Alex Pollock argues the best way to deflate the student loan bubble is to hold colleges more accountable in the financing process:

Who are the most important parties to have “skin in the game” in student loans? The colleges themselves, of course! They are the effective originators, the promoters, and the chief financial beneficiaries of student loans. It is their rising costs which result in ever more debt and more risk of default for student borrowers and for taxpayers.

The federal student loan programs should simply compel colleges which get proceeds from the programs to maintain a 10 percent first-loss share in the credit performance of the loan. This puts a material risk of excessive and un-repayable debt and of high college costs on those who are promoting the loans. The colleges would stand to take losses on bad loans before the taxpayers, as they should—they would, in financial parlance, be subordinated or “junior” to the taxpayers. A highly desirable improvement in financial structure and incentives!

If you have taken out, are considering taking out, deathly-afraid of taking out, or currently paying back student loans… We want to hear from you! What do you think is the best way to drive down the cost of going to college?

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Comments

http://www.facebook.com/profile.php?id=100001849874103 Jamie Newman

You forget one thing when you say that the feds can recoup 96%. That’s not true at all they recoup much more than that. When a student goes into default the loan interest becomes capitalized. The government sends the loan to a collection agency who charges 25% or more on top of the capitalization of interest. The student can never get out of debt and the loan can double, triple and quadruple over decades. So who’s making money off of this? The government of course! All the money taken as wage garnishment or tax refund offsets goes entirely to interest which when capitalized never goes down. So the government has a continued flow of income from defaulted student loans , basically for the life of the student.

http://twitter.com/StateImpactIN StateImpact Indiana

Hi Jamie. The point that Jason Delisle was making was that — while, yes, they collect more than the original loan was worth — the cost of recovering that defaulted loan money (i.e. paying staff to go after it and collect it) often offsets much of the collections.

When a loan goes into default, Delisle writes that the *net* recovery rate — the amount of the loan actually paid back — is about 75-82 percent of the original loan amount. And those are the government’s numbers. Delisle links to a study that says the government’s net recovery rate is more like 50 percent.

You’re right a loan in default ends up getting paid back for much more than the original loan amount. But Delisle is saying the government doesn’t see that money. It’s lost in the bureaucratic process of recovering the loan amount.

http://www.facebook.com/profile.php?id=100001849874103 Jamie Newman

Then they should stop that bureaucratic mess with the new bill from Congressman Hansen Clarke ie H R 4170 . The Cap alone on the forgiveness for new loans could reign in tuition costs.

Surfguru

I defaulted on my student loan when my attorney (an I.U.) Alumni stole the assets of my mother estate and personal my personal private assets. The estate had the responsibility by court order to pay the loan back. But the attorney stole all the assets.. millions as well as my personal assets as I said before.
Now and for the past ten years I.U. refuses to verify my diploma and it was as if I never attended the college. From my perspective how can this morally be, they take your education away becuase you cant pay and this further eliminates any employment possibilities of ever repaying the loan.
Even worse in Indiana (my attorney) who was a state attorney in Michigan City has stolen tens of millions and no one can file formal charges.
Seems as if the system has made it easy to default and responsible or not they have made it impossible to repay.
Next time I will be sure not to higher an attorney who is a Mexican Cartel representative.